This session looked at the role of the board in corporate crises, comparing in particular the American and Chinese experiences. The panel brought together three speakers with significant, yet diverse experiences in corporate governance. Dean Paul Danos has worked in and around boards in the US and could bring in examples from his personal experience of dealing with crises as a board member. Mr. Stuart Cable is an experienced corporate lawyer and governance expert. Attending around 60 board meetings per year and representing about a dozen companies, he was able to offer legal as well as practical observations about the US system and how boards deal with crises. Mr. Xiaozu Wang provided the Chinese perspective, having very closely studied and worked in the area of corporate governance in China. I found this panel very interesting as it is in crisis situations that boards take on an active and therefore much more public role. Moreover, having lived and worked in both the US and China as well as in Europe, I am personally very interested in this topic and the practical challenges of doing business in different countries.
Many interesting points were raised during the session, but I would like to highlight two that stood out for me as key takeaways. First, there are both differences and similarities between how US and Chinese boards deal with crises. In the US, for example, several rules determine how the board can and should act in crisis situations. After establishing that “the buck stops in the board room”, Mr. Cable highlighted the ‘duty of care’, the ‘duty of loyalty’ and the ‘business judgment rule’ as basic principles on which the board makes decisions. Comparing the two countries, Mr. Wang pointed out that the Chinese stock market is just 22 years old and that until fairly recently most companies had just one major shareholder who had virtually all control of the company. As a result, while the legal framework in China is pretty much in line with the rest of the world, corporate governance in practice is still evolving as boards gain experience in dealing with various crises.
Second, it is a useful exercise to put oneself in the shoes of the board in various crises situations. Mr. Cable challenged the audience to think about various crisis situations and asked: What should the board do? The three situations discussed ranged from a company receiving an unsolicited letter with an offer to acquire the entire company for cash, to the company’s CEO being accused of sexually harassing an employee, to the SEC making enquiries about material misstatements in the company’s financial reports. In all three examples, the comparison between the Chinese and US legal systems and practices was enlightening. For example, in the case of an unsolicited acquisition offer, is the board obligated to engage in negotiations with this prospective buyer or can they say “No, thank you – now is not the right time”? Mr. Wang noted that in China, this decision would normally not be brought to a board meeting, but discussed first with the major shareholder. In contrast, Mr. Cable noted that in the US the very first thing that would happen is that it would go to the board, which would establish a process on how to deal with the offer – this is part of the “duty of care”. Furthermore, it was noted that in the US, if the board has the choice between two proposals – $35 in cash and preserve all jobs or $38 in cash and significant layoffs in the company, the board has a fiduciary duty to take the higher offer as it needs to maximize shareholder value in the context of equal or no execution risk.
Overall, it was a very informative session, and the audience asked several interesting follow up questions on the various scenarios and how they would be handled in the US and Chinese contexts.